A few weeks back, I was sent on a bit of a wild goose chase through our garage. We were turning one of our guest rooms into my son’s new “big-boy” room since the arrival of our second child would soon be evicting him from the nursery. I was looking for a specific can of paint so that we could do some touch up work and, as I’m rummaging through cabinets, I come across an old box of DVDs. I couldn’t help myself. Instead of continuing to look for the paint, I start going through the box of movies instead. Near the top was Back to The Future.1 For those unfamiliar, the plot of the film involves a 17-year-old kid named Marty going back in time in a machine built by his eccentric yet insightful scientist pal, Doc Brown. It’s a fictional concept, but it got me thinking. If I had the opportunity to go back in time and mentor a younger me, what would I say? Then it hit me. I’ve actually written this down before.
I went into my office and pulled out an old journal where I had scribbled down an idea some time ago. At the top of the page was written the word “Retrospect,” and below it was a brain-dump of all the things looking back that I wish I had known or paid more attention to as a young adult. It was an eclectic grouping of topics, but naturally included a lot of items dealing with money. I thought I’d share those themes with you today knowing what I know now.
- Have a monthly cashflow plan that you are committed to. Said another way, put yourself on a workable budget and stick to it. Small, consistent disciplines with your money can lead to big results down the road – the most significant discipline being the ability to say “no” to yourself in a world that tells us instant gratification is the norm. Without a budget, it is hard to tell when and where saying no is needed the most.
- Build “margin” into your life, especially with your money. Strategically build in enough cushion for uncertainty by making savings a priority, otherwise you’re constantly stealing from your future. I covered this concept in a previous article2, so I won’t belabor the point.
- Make sure that you are truly ready to buy a home before you pull the trigger. There are so many secondary factors to consider, not just what the monthly payment looks like3. Three big things to keep in mind:
- If your total monthly mortgage payment is more than 35% of your net take home, you will quickly find that you are house-poor and have little room in your budget for other things that bring you joy.
- Do everything you can to save and put 20% down on the purchase. PMI feels like a wasted expense!
- Ensure that you have an adequate coffer set aside for home maintenance and repairs- they will come knocking sooner or later and are generally always more expensive than you think!
- Let your cashflow plan dictate what you can afford when it comes to large purchases, not your initial gut reactions. The latter is emotional and will potentially lie to you whereas the numbers will not. If you find yourself too emotionally torn over a purchase, it’s usually a warning sign that you’re trying to convince yourself it is a good idea – it probably isn’t.
- Be very careful when borrowing from or lending money to loved ones. Relationships can be ruined over money, it’s the simple truth. A personal rule of thumb: I don’t lend money to ANYONE unless I’m ok with it ending up as an outright gift. A written plan for paying the money back isn’t a bad idea either, whether you’re the borrower or lender.
- If you’re blessed with an increase in income, it doesn’t have to correspond to an immediate elevation of lifestyle. It’s easy to fall prey to this- you get a raise and immediately start spending it in your head. It’s ok to reward yourself for your hard work, but it is important not to overdo it. Capitalize on opportunities to save so that when you are able to elevate your lifestyle it is done comfortably.
- Don’t be cavalier with credit cards, it is a dangerous game. When used responsibly, credit cards can be a useful tool. But, when people use credit cards to live above their means, plastic becomes a problem. Only charge what you can pay off at the end of the month, which shouldn’t be an issue if you have followed the first 2 bullet points above.
- Know and understand what your benefits are through your employer and don’t leave money on the table. Three keys:
- Make sure you understand what benefits your employer pays for on your behalf, and what you are paying for yourself.
- Make sure you understand how your health insurance choices work. Compare your options based on this knowledge and budget accordingly.
- If your employer offers a match on your company retirement plan contributions, ensure that you are at least contributing that amount to the plan. And work diligent to increase contributions each year until you are funding the maximum the law allows.
- Ensure those who are dependent on you are taken care of if something happens to you or you can’t work. None of us are guaranteed to wake up tomorrow, and, if we do, Heaven knows Atlanta traffic carries no certainties about making it anywhere in one piece. Therefore, proper insurance coverage is important. Wondering where to start?
- Have adequate life insurance- what needs to be covered, replaced or paid for should something happen to you?
- Disability insurance has its place too- you are statistically more likely to become disabled than you are to pass away. What happens if your family no longer has your income coming in?
- Basic estate planning is an absolute necessity, so don’t wait too long to address the need.
- Be sure your beneficiary elections are set up properly on retirement accounts and life insurance.
- Make sure you have a properly drafted will, financial power of attorney, and a healthcare directive, and that the people you choose to carry out your wishes are responsible and mature enough to do so.
I sat down and watched Back to the Future later that night after the painting was finished. Fittingly, there was a part in the movie where Doc tells Marty, “…your future is what you make it. So make it a good one.” Hopefully some of the insights above will give you food for thought as you prepare for your own future, and rest assured the team of advisors at Atlanta Financial are here to assist you along the way. In the meantime, I leave you with one final bit of advice. Keep all of your old paint in one cabinet and label the cans based on the room it was used in. Would’ve saved me time and a scolding from my wife!
1 Fun fact: Marty and Doc earned Spielberg the top grossing film of 1985, besting TWO of Stallone’s features released that same year (Rambo: First Blood Part II and Rocky IV). Put that one in your back pocket for movie trivia night!
2 Check out “Proper Margin” from March of 2019.
3 Don’t forget about property taxes and home owner’s insurance (usually escrowed with your overall payment), additional cash necessary to close on the mortgage, resell value and geographic demand (can it be rented and do I even want to be a landlord if I can’t sell it?), and likely maintenance needs (hard to quantify sometimes, but err on the side of conservatism).